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Monday, October 31, 2011

After a stellar first quarter growth, then a staggering second quarter loss, we are finding ourselves back where we started in the third quarter of 2011. What is going on?

As I have noted in the past, it is a good mental exercise to calculate your net worth on a regular basis - at least yearly, if not monthly. It is the only way to understand whether you are treading water, getting ahead, or sinking out of sight.

When you add up all your assets, deduct all your liabilities, you have a clear picture of what is going on in your life - and whether you need to make changes in your spending, saving, earning, or whatever.

Since the beginning of the year, we have been on a roller coaster ride. I made enough money from my investments, at one point this year, to be able to buy a brand new BMW. Then the Republicans decided to grand-stand this summer with their debt ceiling debacle. Suddenly, the GOP was shocked - shocked - to discover that the country was trillions in debt. Gee, I wonder how that happened?

The market reacted poorly to this - and to the Greek debt crises as well. Suddenly, it seemed that instead of slowly climbing our way out of recession, the United States was teetering on bankruptcy, and moreover, the European Union was about to go under. Welcome to the brave new world - where China is the big player, and everyone else is third-world status!

Or so we thought. We all went on vacation, and when we got back, the house was still there, the sun still rose in the east, and prognosticators kept preaching doom-and-gloom, but people stopped believing them so much. Unemployment remained steady, perhaps dropping a bit, and prices are flat and corporate profits, are, well, not stellar, but not bankrupt, either.

So the market has recovered to the point of January 2011, and not surprisingly, my personal portfolio is about where it was in January 2011.

Should I have sold in June and bought in July? Perhaps. But timing the market is difficult, at best. Bear in mind that often what drives these price swings are not the smart investors thinking the world is going to hell in a hand basket, but rather Joe and Josephine Paycheck, who panic at every piece of bad news and get euphoric at every piece of good news. I think they are the ones selling out in response to bad news on TeeVee and then buying back in when the coast is clear.

Sell low, buy high, the surefire recipe for going broke.

As I get older, such volatility is less and less attractive, of course, and today, I rebalanced my Fidelity account to get a little more bond-heavy and a little less stock-centric. I already have bonds in other parts of my porfolio, and even in the worst of times, they go up in value. Ditto for life insurance, which just keep chugging along, spitting out dividends and increasing in cash value, like some sort of money machine (caveat, it hasn't yet increased in value to the point where it is worth more than paid in, of course).

I guess I am an optimist. Overall, I don't see the United States going bankrupt anytime soon. 330 million people have a vested interest in seeing that not happen. And for all our problems and faults (which are magnified by the television 1000x) we will work our way through these "crises" one at a time, the way we usually do - by compromising, changing, and morphing.

Should I have bought Gold instead? I think not. While the stock market has gone down and then up, gold tends to mirror the market - going up, and then down. During uncertain times, the price of gold shoots up. So gold shot up to $1700 an ounce (good time to sell) and then dropped back to pre-panic prices. The chart above would seem to show that gold is a swell investment. But scaling is everything, isn't it?

The chart above blows up the last 10 months. While gold is still up for the year, it had dropped from its dramatic rise of August and September. And each piece of good news will hammer it further. Commodities remain a risky investment.

Being a smart student-consumer includes knowing when and how to drop out.

College is a big expense these days. And increasingly, we are asking 18-year-olds to make the most important financial decision of their lives, at an age when they are still popping zits, trying to get laid, and trying to sneak beer into their dorm rooms. Kids can graduate from college with staggering student loan debts - and little to show for it.

So it pays to be an intelligent student-consumer and look at your education from a consumer point of view. How much does each class cost? It is well taught? Are you getting your money's worth? What is the point of all this? Are you learning something useful to you or in a field you enjoy? And if you are not getting your money's worth, make some noise - or make changes in your college plans.

Just as you'd take back a broken iPhone to the Apple store and demand a full refund, you should be equally astute with your college or university - if you are not getting what you paid for, or decide you want to change your mind.

And if college isn't working out the way you thought, should you stick around? Dropping out of college is not some far-fetched scenario, but rather a likely outcome for about 1/3 of all college students. And yet, few of us are prepared for, or guided through, this difficult process.

And the answer why this is so is simple: We are taught from birth that our lives have a story arc: get good grades in high school, ace the SATS, get into a good school, graduate with good grades, get a good job, build a career, get married, have children, retire, play golf in Florida, then die.

Well, that "story arc" model of life is bullshit, let me tell you. Few of us actually live that way. But the story is still told, and the underlying message of it is this: If you fuck up, even once, it's all over for you, buddy! You'll be a "loser" for the rest of your life!

And that is a silly message. In most colleges and universities, as I noted, about 1/3 of the students drop out. And the way schools handle this is a scandal. If you go to the school administration, they talk to you in hushed tones, as if planning your funeral. Little help or guidance is given, other than to usher you off-campus as soon as possible, lest the stink of failure infect the other children.

And in some situations, this sort of treatment has tragic consequences. When I was a Pizza Delivery driver and going to S.U., we had a fellow who was flunking his courses. Rather than deal with this in a rational manner, he bought into this "story arc" bullshit, and thought himself a "failure" in life. Too ashamed to face his parents, he jumped off a building. What a waste!

Let me tell you, dropping out of school is no big deal. Bill Gates did it. I did it. You can, too. In fact, there is a 1-in-3 chance you will! So instead of viewing this as some sort of horrible, unpredictable outcome, let's treat it as the realistic possibility that it is, and do it in style!

Here are some hints on how to drop out, if you want to or have to:

1. Memorize those Add/Drop deadline dates: You can get a full refund of tuition if you drop a course by a certain deadline date. If you sign up for a course, and feel completely mystified and flunk the first quiz, maybe it is better to drop the course and take it later, rather than pay money to get an F.

2. Explore the "Incomplete": I took Thermodynamics three times. Yea, it is a hard course. The second time, I did not take the final exam, and got an "incomplete" for the course. As they say, third time is the charm - I aced it with an "A". The professor who was advising me at the time noted that I hadn't taken the final the second time around and helpfully turned an "F" into an "incomplete" and also filled out paperwork to get my tuition refunded. Professors are not all hard-asses, and it never hurts to ask if you can drop a course later in the semester and get an "incomplete" rather than an "F".

3. Don't wait for failure, take action: If you are not happy in school and your grades are dropping, don't wait until you bomb all your courses before dropping out. While a bunch of F's on your transcript are never helpful, they aren't the kiss of death people make them out to be - particularly when you transfer schools later on (more on that later). However, if you can voluntarily leave, take a leave of absence, take a semester off, or whatever, it works out in your favor later on.

4. Don't Panic: We are all trained from High School sports that "Failure is not an option" However, in reality, failure is not only an option, but a predictable outcome. While you should not be proud of dropping out of Party U., you should not let it psychologically damage you, either. You will move on in life. You will get a job, you will likely go back to school at some point, and the odds are, you will still be "successful". In fact, you may be more successful than if you had stayed in the program you dropped out of.

5. Don't be afraid to seek help: Most schools have a psychology department or a health center you can go to, to get help. OK, so maybe you are not going crazy. But, a letter from a kind counselor at the health center might make it easier to voluntarily leave school, rather than be kicked out. I'm not saying you should fake being crazy, but hey, if you are thinking of dropping out, I'll bet you're at least a bit depressed. Don't be afraid to ask for help - and use it.

So what do you do after you drop out? Well, it will suck for a while, as no doubt your parents will "get on your case" as if they never failed at anything in life*. The secret is, of course, to get out on your own, find a job, and move on. Use this as an opportunity to change your life, not a chance to move back in with Mom and Dad and smoke a lot of pot.

And speaking of which, now is a good time to take a personal inventory. And drugs and alcohol are two primary reasons why kids drop out of school. I know it had an influence on me. I had a friend who was a super-smart guy who would have been a fantastic Engineer - but he got caught up in pledging a fraternity, discovered that beer was his new friend, and dropped out before his freshman year was out.

Fraternities, by the way, can be evil like that. It is easy to get caught up in the "extracurricular activities" of college and forget why you are there. Hanging out with the guys in the dorm, or hanging out at a Frat house starts to seem to be the big deal - and studying and learning come in a distant 3rd or 4th. The good news is, as a returning student, you will be less inclined to be distracted this way.

Going back to college is a good idea - but this time, use your experience from the first time around, and learn from your mistakes. I re-started my college career by attending night school. Syracuse University had a night program for "adult students" and I was able to take a number of courses, including calculus, thermodynamics, circuits I & II, as well as some non-major credit requirements (psychology). Check out colleges and universities near you - they may have a night program or adult education program as well.

Once I had established I had the ability to get good grades, I applied to the Engineering program and was accepted. Funny thing, but schools need warm butts to fill the seats vacated by dropouts, so they court "returning students". And as one of the Deans told me, they need students with good grades, to keep up their own certification standards. Once I started getting A's, they really liked me and even offered me some small scholarships. From college dropout to Dean's list - it can be done.

There are some basic rules about "going back", however. Usually the school issuing the diploma wants you to take at least half the courses at their school. So they will credit you only for about two years of work for a four-year degree. Why? They want the money. They ain't about to hand out a sheepskin to someone taking that last 3-credit course to graduate. And that's fair, of course.

Dropping out turned out to be the best thing that happened to me, in retrospect - although I did not plan it well. I was attending General Motors Institute, wanting to study automotive engineering, and being pushed, by my plant sponsor, into plant or mechanical engineering instead.

Had I "stayed the course" and "not been a failure" I would likely be unemployed today. The plant I was working at closed within a few years after I left. And of course, General Motors ain't doing so well these days, either. Had I stayed there, I would likely have been laid off - or facing layoff right now, at age 51, with few job prospects.

And perhaps I realized that it was a dead-end at the time, but was too young and too afraid to take action. After all, the "smart" thing to do would be to not quit and "stay the course" - right? I wonder, sometimes, about the "smart" guys I knew there, who got good grades and played the game. I wonder how that worked out for them? I am suspecting that it was not as they envisioned.

Sometimes it pays to listen to those "gut instincts" and act on them. But it is hard to do when you are 18 or 20 and young. You feel that you should listen to others - and older people are often the worst at giving career advice.

So, if you are struggling in school, just plain bored, burned out, or whatever, don't panic. Life will go on, probably better than before. And while college may seem like the end-all right now (just as High School was, a few years earlier), later in life, no one really gives a rat's ass about where you went to school.

Well, no one except for those losers for whom high school or college was the apex of their lives. And you don't want to be one of them, anyway.

* * *

* When I dropped out of GMI, my parents gave me a hard time about it, of course. It was only years later that I realized that my Mother was tossed out of prep school and college herself, and that my Father had dropped out of the Engineering program at MIT to switch to the Sloan "management" school after a run-in with Thermodynamics. The irony was apparently lost on them.

Later in life, my Dad was telling some long-winded story and mentioned that "as an Engineer" he felt that such-and-such. I told him, "Dad, there's only one Engineer in this room, and you aren't it!" He didn't care much for that comment, but that was the truth. Only one lawyer in the room, too.

Student Loan money is funny money - and drives up the cost of education.

I am not a big Ron Paul fan. The guy - and his followers - come across as crackpots. But even a stopped clock is right twice a day, and recently, he called for an end to Federally Subsidized Student loans.

The reaction to this proposal was typical. The media reported it as "Ron Paul calls for end of Student Loans" - as if all student loans would go away under his proposal.

And bloggers and whiny people say things like, "Well, then only the RICH will be able to afford college!" which is idiotic on its face. Schools need to put butts in the seats, just as airlines do. It is not big "privilege" anymore to be accepted into college - anyone with middling SAT scores and grades can get in. Just as it is not a "privilege" to be allowed to fly on a plane. You pay your money and take your seat.

The difference is, of course, is that we all shop competitively on air fares and we all just forget everything we've learned about economics when we shop for colleges.

If people stopped flying on an airline, the airline would go broke - or lower its fares. If people stopped applying for college, colleges would go broke (and many appear poised to do so) or lower their tuition. And as the number of potential college-age people in our population shrinks, colleges are going to be in a lot of trouble - trouble of their own making.

And one problem is the funny money of student loans. Kids think, "Gee, if I buy a $200,000 private college education, it will make me twice as much money as a $100,000 State school education!" But that is not really the case. Just as your High School record really only is relevant to getting into college (Trust me, despite what your Principal says, no one looks at your 7th grade Algebra test scores, or the black marks on your "permanent record" once you are an adult), your college diploma is only really relevant to getting that first job. Once you prove your way in the marketplace, it really makes less difference where you got your degree, provided it wasn't at some real Podunk University.

There are, of course, exceptions to the rules. I interviewed with a fellow I used to work for, who went off to a "Big Name New York Law Firm". He wanted me on board, because they had no one there who would stoop to actually writing Patents for them. But, he explained, the Partners in New York City decreed that only the best and brightest law school graduates from the top tier law schools could even apply. Unless you were on Law Review at Harvard, forgetaboutit!

But the deal is, those positions represent less than 1% of the jobs out there - and the likelihood of you getting into Harvard or Yale or whatever is pretty slim anyway. You aren't going to starve just because you didn't go to a name brand university. And that fancy New York Law firm? They went belly-up, of course. Their pedigree lawyers were pretty to look at, but didn't actually do much, in the way of real work. In the new economy, few companies are paying $500 to $1000 an hour for someone to look pretty.

The reality of college today is that most students are overpaying for the education they are receiving. And a LOT of students are paying so much that they can never get out from under the debt - which becomes a crushing burden on them for the rest of their lives.

This is the system people are defending against Ron Paul's proposal? Go Figure.

Mr. Paul points out another unfairness of the system - that government subsidy of these loans puts the taxpayer on the hook for the potential payback. So, in effect, the working class has to subsidize the college educations of the middle class. One group of citizens should not be asked to subsidize the activities of another - particularly when the activity being subsidizes favors a well-off class of people.

And this illustrates how even well-intentioned actions by the government to subsidize, guarantee, or otherwise encourage certain activities - whether it is growing corn, buying houses or electric cars, or borrowing money to pay for education - can backfire in a big way.

The Ron Paul's and the flat Taxers of the world might be a bit crazy and naive, but they to have one point to make: Maybe the government should stay out of the business of creating systems of incentives and let people do what they would be naturally inclined to do in the first place.

Back in the day, a Travel Agent was convenient and often necessary, if you wanted to book trips effortlessly. Today, this is not so much the case.

We are booking another cruise - this time for a Continuing Legal Education seminar. Yea, it is one of those screwy deals that the tax law allows - you can go to Hawaii for a law conference and write off all or part of the trip as "client development" and "business expense".

This trip, however, was booked through the State Bar CLE seminar, which in turn, used a travel agent. So now, in addition to dealing with the cruise line's website, I have to deal with the CLE people, the travel agent, and when I call the cruise line, their "group reservation site".

Things are not so simple this way.

Back in the day, travel agents were a pretty good deal. Airlines and hotels and cruise lines paid them as a percentage of ticket price, so there was no direct cost to you, the consumer, for booking through an agent. Today, airlines are locked in fare battles, and booking through an agent often means paying an extra fee.

And given the nature of the Internet, booking a flight through an agent often makes no sense. You can go online, shop fares and book reservations using the same computer network agents use, basically. The odds of a travel agent getting you "a better deal" than booking directly online yourself, are slim.

For example, to go on this cruise next week, we need to fly to Ft. Lauderdale. The travel agent offers a "great deal" on airfare, but of course, it isn't much of a deal. And the agent isn't that interested in booking it, as it is just a big hassle, and they make maybe $10 on it - which they have to charge you. It is just easier to go to the Southwest airlines website and book it yourself - it takes only minutes. So the agents themselves end up negating the whole "one stop shopping" deal.

And as a result, the travel agent business has been hit hard. With a dwindling client base and decreasing revenues, it is hard to make a living as a travel agent these days. Two decades ago, even the smallest town might have a local travel agent - advertising in the local paper. But today, the business has shrunk considerably - and specialized.

The traditional travel agent who takes customers off the street and plans vacations, has pretty much gone away. The remaining agents often specialize in group tours or special promotions - setting up a trip, for example, for the 200 top salesmen at a particular company. Agents CAN save money when booking in bulk like that - and you need someone to attend to all the details.

But for the individual, they are not a cost savings, and in fact a cost increase. And since you don't represent a big profit center for them, their service often sucks. Compounding this is the fact that once you book through an agent - as with my experience - you might sometimes be locked out of the airline, hotel, or cruise line websites and be told to "contact your friendly travel agent!" instead.

Of course, there are new types of computerized travel agents out there - sited like Orbitz, Travelocity, and Priceline. These online travel agents (which is what they are) offer to get you a "deal" on airfare, hotel, and rental car. However, from my experience, their "deals" are often within a dollar or two of the airline's website, the hotel's website, or the rental car agency's website. And of course, there is a good reason for this.

These travel companies (hotels, airlines, rental car agencies) have to pay the travel agent sites a commission on each sale (yea, everything on the Internet is free, but someone ends up paying for it all - just be sure to figure out who, and in most cases, it is you). So a $99 flight, booked through an online travel site might net them $89, after commission. The airline would prefer to sell you that ticket for the same price you pay Orbitz, and pocket that $10 extra.

Sure, back in the day, when airlines quoted outrageous fees for airfare, and discounts were few and far between, it made sense to use an agent. But today? There is not a lot "there" there in terms of discounts. But there is a lot of hassle.

I am not anti-travel agent, but just stating the hard facts of reality. Sure, back in the day, when only Agents had access to the Sabre computer network, and knew how to use its arcane commands and print out tickets on "airline ticket stock" (which was like cash), a travel agent made sense. And since they were a short walk from your place of work, or a short drive from home, they were convenient as well.

But today, they are just a hindrance - a layer of abstraction between you and the ultimate database. So you end up playing "telephone operator" with some low-paid intermediary, rather than accessing the database directly.

It is, in a way, like the Agency model for Car insurance. You can call the ditz-brained "associate" at the local State Farm agency, and get the wrong information, or go right online to GEICO and just see the data for yourself. Putting additional humans-in-the-loop does not increase reliability, but rather decreases it.

Celebrities. Rock stars, movie stars, sports stars, even political stars. We are all encouraged to follow their every move. And more and more, news outlets cater to our need for celebrity news. CNN has moved to an almost all-tabloid celebrity format at this point. It is easier than reporting real news.

And the tabloids, which are nothing but celebrity news, are now considered serious news sources.

We are bombarded, daily, with celebrity news and gossip. And we are all expected to have serious opinions about celebrities - whether O.J. is guilty, or whether Brad should marry Angelina or whatever. And for many folks, following celebrities is a major part of their lives and their daily activities. People turn over their whole lives into being "fans" - and you've seen these idiots, too, camping out, outside a hotel, just for chance to see their star.

What is going on here, and is this healthy for you and your finances?

Answering the latter question first, I think not. Being obsessed with our celebrity culture is a distraction and a means of getting you to take your eye off the ball, in terms of living your own life.

And chances are, the poorer you are, the more you obsess about celebrity. Think about it. Who buys those magazines at the checkout counter with all the lurid celebrity gossip? Demographically speaking, the dumb and the poor (which is a redundancy). Who watches all those celebrity-driven TeeVee shows every night? Not busy people with things to do, that's for sure.

The cult of celebrity is a distraction - and a distraction designed to get you to think less about your own life and more about someone else's. After all, our lives are pretty drab and uninteresting in comparison to celebrities, right? Following the lives of celebrities allows an ordinary schmoe to participate vicariously in the lives of the "rich and famous."

And you might argue, "Well, what's the harm in that? It provides some entertainment and relief to a person whose life is, in contrast, pretty dull!" And that might be a good argument. After all, human beings have been following celebrities for as long as mankind has existed - first as legends and folk heroes, then leaders, kings, and even daring bandits and villains. Today, however, we follow the lives of just about anyone - even people whose sole source of celebrity is being a celebrity - what I call a "bootstrap" celebrity, such as Paris Hilton, who has no real claim to fame as a celebrity other than being a celebrity.

The harm, I think, is that when a person gives themselves over to celebrity-following, they are basically abandoning their own lives, in part. Most of us will never be celebrities - and that is a good thing, too. Most celebrities, it seems, end up having tragic ends, no matter how well off they are. But by saying that the life of Michael Jackson is more important than your own life, I think it lessens, not enhances your own existence. You end up doing things not in your own self-interest, over time.

And it is no coincidence that today celebrities hawk products through product endorsement deals or sell their own lines of clothing or whatever. They encourage you to become part of their lives, by spending money. And of course, the demand for so-called luxury goods is driven, in part, by the desire to be like them - to have some of the same sizzle and pizzazz as our celebrities.

You may recall, sales of white Ford Broncos peaked, after O.J. was arrested in one, after a long Police chase. Yes, people really are that stupid.

Even minor celebrities have something to sell. Land a plane in the Hudson, and you immediately get a book deal and make a few million. No offense to the pilot, but I am not sure that is a book I'd even check out of the library, much less spend $20 on.

Perhaps in the past, celebrities were a form of role models, and perhaps served some greater good. Celebrities were the people we elevated above ourselves - people we felt were better that us, or were leaders, warriors - people who were brave, just, and kind, and of course, good-looking. Today, however, celebrities are pretty much all horribly bad role models. Part of being a celebrity today is to be in re-hab or to get arrested, or to commit other foul acts, such as dog-fighting. Part of this, no doubt, is due to the wide latitude we give celebrities.

Part of me, however, wonders if much of it isn't scripted in advance. After all, many minor celebrities never appear on the radar screen, until their messy divorce, DUI, or drug bust becomes public. And if you are a has-been celebrity, one way to get back in the limelight is to stage this sort of fall-from-grace, followed of course, by a redemption and tearful press conference. And the inevitable book deal, of course.

Even our politics today is celebrity driven - not only in terms of which celebrity supports which candidate or cause, but in making candidates and politicians into celebrities - celebrated more for their antics and posturing (and sound bites) than for their actual views or actions in office. Conservatives like a tough-talking politician who tells those liberals "what for". Liberals like politicians who make withering indictments of conservatives for their views. Neither group notices that both types of politicians are pretty much the same - more concerned with getting re-elected and in redirecting money from the treasury to their own special interests. The real story is never talked about. Pay no attention to the man behind the curtain!

Of course, in the old days, our politicians (Royalty) were our celebrities. And there is some aspect of human nature that we, as ordinary slobs, like to see our leaders ensconced in riches. The king may be exploiting the peasants, but, hey, look at that robe he's wearing! Pretty cool, eh? Even back then, the cult of celebrity distracted the peons from what was really going on.

We even have tech celebrities today, such as the late Steve Jobs. We are told that he was a genius of computing - much as people laud Bill Gates. But the reality of technology is that it is a collaborative effort, and the person at the helm of the company is often little more than, well, a celebrity.

I guess there is a human need to elevate one of our own above ourselves, and then to laud them and hail them with riches. You may recall, back in the 1980's, a guy called the Bhagwan, who started a religion, commune, cult, or whatever, and whose followers bought him 93 Rolls Royces - before he was deported for making fraudulent statements on his visa application. His followers hoped to buy him a total of 365 cars - but never got around to getting them all. It is odd, that they would want to live in relative privation on this commune, and then shower their leader with riches. But I think it speaks to a fundamental aspect of human nature.

And in this regard, it should not come as any surprise that people living below the poverty line will send off money to televangelists, like Jim and Tammy Fay Baker, who lived in the lap of luxury. Not only were parishioners not outraged by the antics of the two leaders, they expected them to live lavishly. After all, only a loser religion would have an impoverished spiritual leader, right? We want our Popes and Imams to be above us - to be celebrities. No one would respect the Pope if he wore a plain black clerical outfit. In retrospect, it is amazing this Jesus thing went anywhere at all.

And no one would respect the Queen, if she appeared in sensible slacks and shoes. We want our leaders to be above us - often literally anointed by God. Or in the case of some emperors, Gods themselves.

So what is the harm in all of this? Again, following celebrities ends up taking time away from your own life - and makes you a passive spectator of life, rather than an active participant. Rather than taking an interest in your own life, you substitute the lives of others. And, in most cases, the messages you get from celebrity-worship are messages that are contrary to your own self-interests.

Be your own celebrity. Take more of an interest in your own life - as boring and bland as it might be - but of course, not falling into the opposite trap of making your life into a drama. The common denominator of celebrities is this - while you may follow their every action and move with breathless detail on TeeVee and in the magazines, they do not similarly follow you - or even each other. The people who are ON TeeVee rarely, if ever, watch TeeVee. They simply do not have the time, and their lives are too important to waste being passive consumers of media.

Sunday, October 30, 2011

10 years old, with 100,000 miles on the clock. What is the marginal cost of operating a "paid for" car?

One thing I don't have to worry about every month, is making a car payment. And most folks do worry about this - and some folks never get out from under car payments - jumping from one loan or lease to another, convinced they are saving money by "avoiding repair bills".

But there are huge savings in owning a car that is "paid for" - either by paying cash for it, or buy paying off the loan, taking care of it, and keeping it. The cost of ownership can drop right off the map.

The 2002 BMW X5 pictured above is about 10 years old, and now has about 130,000 miles on it. The book value on such a car is less than $10,000, and from what I see selling on eBay, that is about right.

The insurance costs about $15 a month. You read that right. By dropping collision, comp, rental car insurance, towing insurance, and other junk coverages, and by being old, driving carefully, not getting into accidents or having tickets, the cost of insurance is less than the cost of a few gallons of gas every month.

Gas, of course, depends on usage. I drive about 10,000 miles a year or less - often far less - while most people drive 15,000 miles or more. For my usage, at 20 miles per gallon (which sucks), I can expect to buy about 500 gallons of gas a year, which at about $4 a gallon (92 octane) will run about $2000 or about $166 a month - the largest expense.

By the way, this illustrates why I don't have collision on this car. The cost of fuel exceeds 1/5 the value every year. It is about as valuable as a BIC lighter. Collision and Comp would at another $1000 to the cost of insurance - about 1/10th its resale value, at this point.

Registration and property taxes (yea, we have those here in Georgia) run about $75 a year and falling. Note that for a new car, this could be a few hundred a year, so you do save more owning an older, "paid for" car. So the registration and taxes run about $6 a month

Regular maintenance - oil changes and such, run maybe $50 to $100 a year or about $8 a month.

Now of course, the leasing set will say, "Well, what about repairs! They can be super-expensive!" Well, they can, but there is no law on the books (yet) forcing you to repair a car. For a $10,000 car, it is not worth spending, say, $10,000 to repair it. You could just go buy another, similar car. And as the car gets older and older, eventually there will be a repair that exceeds the book value, at which point you junk the car. So the idea that repair costs will "spiral out of control" is ludicrous.

Now there is a valid argument to be made that an older car can "nickel and dime you to death" - but only if you are not very astute about cars. For example, taking this car to the dealer would be sheer suicide, financially, as they would charge you thousands of dollars for even the simplest repairs.

For example, I recently replaced an alternator in the car, which cost $350 Canadian. The local dealer wanted close to $1000 for the same alternator - plus labor. Installing it myself and going to a 3rd party for parts saved a ton of money.

The keys to not getting nickeled and dimed to death on a used or older car is to (a) buy a car in good shape, (b) take care of it and don't abuse it, (c) understand the lifespan of a car and its components, (d) find a good independent mechanic or do-it-yourself, and (e) know when to walk away.

As I have noted in my BMW Fright Pig posting, unsuspecting people get snookered into buying cars that LOOK good, but are mechanically worn out. The car above looks and drives good, but will need tires soon - probably the last set it will have. But by the 170,000 mile mark or so, the suspension parts will be well-worn. Ball joints, tie rods, struts, bushings, etc. And the clutch might go out. And a host of other things as well. And at that point I will sell the car and move on. A shady used car dealer might shine it up and sell it to some kid, who will get nickel-ed and dimed to death with it.

Have a plan on when to get rid of a car, after a certain age. Putting a new (or rebuilt) engine or transmission into an older car usually isn't worthwhile. Look how many are sold shortly thereafter by reading the ads in the paper.

But realistically, I can expect to do a brake job on this car soon, and put new tires on it next year. Throw in the odd water pump, ignition coil, and alternator once in a while, and I think a budget of $500 to $1000 a year in repairs or $85 a month is realistic. If repairs creep up above that, I'd consider selling it, rather than paying more.

So the total damage to own this car, per month? Less than $300.

Now, of course, you see all the time, the ads in the paper for cars for sale for $299 a month. But that is just the payment on the principle and interest. Once you add in the collision, comp and other insurance, you add $100 a month or more (much more if you are younger), then add in the gas ($166 as above) and the registration and taxes ($20 a month) and you are looking at nearly $600 a month for such a vehicle, easily. For a more expensive car, the cost increases accordingly.

Of course, if you can keep the car after the loan is paid off, you can reap the "back end" rewards of ownership, by knocking that $299 off the top and end up paying about half that, for the remainder of the life of the vehicle. And that works out to about $3600 a year. And if you can bank that money, well, in a few years you have enough to buy your next car, when the time is right.

The nice thing, though, about not having car payments, is not having yet one more bill to pay at the end of the month.

A clunker is a car that is near or at the end of its design life. In many cases, such cars can be purchased for next-to-nothing, as they have high mileage and perhaps one or more "issues" that may need attention down the road.

Unfortunately, sometimes unsophisticated folks buy cars like this, thinking that "a car is a car" and that a wrung-old old clunker can be put right with a little money. Such is not the case. And folks like that throw thousands of dollars at an old car and get frustrated and think, "gee, buying a brand-new car is such a better deal!"

It is, of course, a false comparison. A late model used car, 1-5 years old, can be a good deal, as it has most of its service life ahead of it, is still under warranty in many cases, but can cost as little as half the price of a new car. A used car like that is a bargain. A wrung-out old clunker, isn't.

But there are people who intentionally fish further downstream. And some wily folks will argue that you can buy a clunker for a grand or two, drive it until something major breaks, and then toss it away. And there is some sort of perverse logic to this argument.

If you are handy with tools and can fix minor things, fishing this far downstream can be cost-effective, with a number of severe caveats:

First, you have to be handy with tools. Being able to fix small things and put a car in working order can mean the difference between a "good deal" and a "nightmare" in this price range. There is a reason they call cars like this "handyman's specials."

Second, avoid the temptation to throw money at a car like this. Once it requires more than $1000 in repairs, it is probably time to call it quits.

Third, have an end game in mind. While it can be a game to see how many miles you get out of a clunker, there is no point in bankrupting yourself trying to get every last penny out of it.

Fourth, bear in mind that a car like this is not something you want to drive across country. While you can use a clunker for local commuting, it isn't well suited for long trips - as a breakdown on the road could be expensive and frustrating.

Fifth, if your State has emissions and safety inspection, getting a clunker to pass (unless it is exempt) can be problematic and expensive. Of course, it is never a good idea to drive an unsafe car. However, I have seen some inspectors fail older cars just on general principle. And getting an older car to pass strict emissions standards in a major city is just an exercise in futility, most of the time.

My experience with clunkers goes way back to when I was young and poor. I bought a 1966 Mustang Convertible from a friend, who towed it out of a swamp, for $100. I drove it all summer, after installing new floor pans I hammered out of scrap metal and riveted in. The car was a pile of rust underneath and pretty clapped out. When the engine finally died, I sold the car for parts for $100 to someone who collected old Mustangs. Years later, I would find the stripped shell of the car laying in a local junkyard.

I had a similar experience with a 66 Impala fastback I bought for $200. A nice car, but a typical example of what happens to cars in Syracuse weather - all rusty underneath. And like most clunkers, it had its share of issues, such as a driver's side window that would not go down. I drove it for a year and then sold it when it dropped a valve and the rear main seal blew out, sold it for $100 to someone who needed the parts.

Now, you might be tempted to say, "Gee, those are collectible cars! You should have kept them!" But back in the day, a mound of rust was a mound of rust, and throwing money at rusty cars is the ultimate in foolhardiness. Even today, such cars would not be considered restorable. And by the way, such thinking is a classic example of poverty-think.

In the 1980's, I bought a Mazda GLC hatchback from a friend for $500. The driver's door wouldn't open and the alternator light was on. I put a new four-way flasher unit in it (an astounding $30 at the time, the cost of an alternator for an American car!) which solved the alternator light problem. Some leftover carburetor linkage from the '66 Chevy fixed the door latch. I drove that all summer and sold it for $1000, as I needed tuition money. That was probably the only time I actually made money on a used car.

As I noted before, my Brother bought one of those Chrysler New Yorkers from the early 1970's, "as big as a whale" for about $500. It used up more gas than that within six months. That would have been a good "clunker" for him, except that he wasn't very handy with tools, so basic repairs, like a wheel bearing, were beyond his abilities. He spent a lot of money on mechanics and got frustrated.

With the increase in scrap prices in the last few years, as well as the number of "cash for clunkers" programs, the number of clunkers on the road has diminished. However, it has allowed a lot of clunker drivers to "cash in" on their heaps - often getting more for them in scrap value (or as a cash-for-clunker trade-in) than they paid for them.

Of course, one problem with driving a clunker is that they look like hell, and most people are tied up emotionally in what they drive. A car to them is like a suit of clothes, and they want to project an image based on what it is they are steering down the road - whether it be the rugged outdoorsy type in a hopped up jeep (driving to the office) or the sophisticated elite in an expensive luxury car. Driving a clunker projects no image whatsoever, other than as a poor person.

However, such an image can be good camouflage. Katherine Hepburn related, in her autobiography, how Howard Huges used to drive old clapped-out cars that he had his engineering staff fix up - underneath - so that they drove like new, but looked like hell. He had one built for Hepburn, who reported that she was able to shop and drive like an ordinary citizen, even being stopped on occasion to be told she "looked like Katherine Hepburn". Of course, a big movie star would never be caught dead driving such a heap, so no one suspected it was her....

Saturday, October 29, 2011

Getting old sucks, and the fear we all have is getting really old and being broke and destitute and not in control of our lives anymore. Being ambulatory - enjoy it while you can.

You can try to avoid this scenario by purchasing disability insurance and long-term care insurance, but the cost of these policies can be staggering - thousands of dollars a year.

Medicaid will kick in, once you are over 65, but only if you are fairly broke. And again this raises the issue as to whether you are insuring against disability with these policies, or merely insuring your assets.

In his book Die Broke, author Stephen Pollan tells his readers to stop worrying about getting old - and to put off retirement and enjoy living. He says to stop worrying about leaving an inheritance to your kids - and not to expect one from your parents. Which is sound advice. But at the same time, he advocates buying disability insurance and using schemes to reallocate assets in Trusts so that medicaid will kick in - without using up the assets of the elderly person.

I am beginning to suspect that Mr. Pollan is bi-polar. On the one hand, he says to spend it all, work until you are dead, don't worry about transferring wealth or getting an inheritance. At the same time, he says, be sure to talk to Mom and Dad about that medicaid trust, so they don't rip through your inheritance on the way to the rest home!

Which is it? I guess it depends on what he had for breakfast that day, or whether he is Dr. Jekyll or Mr. Hyde.

Sure, it is a swell and fine idea to defraud medicaid by hiding assets of your parents in a trust. No, wait a minute, that is not a good idea, is it? At least not for our country! This sort of thinking is what is getting our country into trouble - middle class and well-off people asking for government assistance, when in fact they are quite well off.

And it illustrates the schizophrenia of his advice. If you truly want to "die broke" then, well, die broke. Use your assets to pay for your personal care, and when you run out of assets, then have medicare pay.

And if you don't spend all your disposable income on disability and long-term care policies, perhaps you'll be able to afford to pay for your care.

I am disappointed in Mr. Pollan, to some extent. His message of removing fear from your life is a sound one. Our ancestors never worried much about running out of money or outliving their 401(k) or maintaining their current lifestyle into retirement. His message of live your live and enjoy it, rather than feel you are obligated to accumulate and pass on a mountain of wealth, makes sense to me.

But then he goes buzz-kill with this talk of disability and long-term care insurance - policies that do not protect YOU, but rather your mountain of money. I find it very odd.

Myself, I am not going to worry about it. Fear is not a useful emotion. Buying expensive insurance is not the answer. Saving money, living well, but on less, is. And if I'm 85 and need to go into a retirement home because I can't walk, care for myself, or do much of anything, what in the world use will I have for money?

Mr. Pollan was right - Die Broke - and don't stress about it. I just wish he was consistent with that message. But alas, few gurus are.

As you age, your portfolio should change. How do you go about doing this?

Most financial advisers suggest re-balancing your portfolio over time, to reflect changes in your portfolio and also your life changes.

For example, during boom times, your high-yield stocks may take off like a rocket. Suddenly, they are worth a lot more, and your more staid investments, like bonds, are an even smaller part of your portfolio. Re-balancing the mix, by selling off some of the high-risk stocks and buying more low-risk, but lower-yield bonds might be in order. This is, in effect, a form of profit taking.

And in the 1990's and 2000's, I did just that. However, you should be careful when re-balancing a portfolio that the financial adviser is not getting a commission on each sale. And if your adviser is telling you to buy and sell quite often, perhaps you should look into his motives for suggesting so.

The second reason to re-balance is that as you get older, your portfolio should get more conservative. This is a good idea from both a survival standpoint and due to the law of diminishing returns. As you approach retirement age, you will be able to take money out from your funds - at which point, it really matters less how much you are making. The effect of compound interest lessens if the amount of time remaining is less. So there is little to be gained by sticking with high-yield stocks, but a lot of risk - the risk of losing it all. And at that age, you can't afford to lose it all.

Now, granted, there are some who take a different approach. I know some folks, who have under-saved for retirement, and are trying to live off interest in earnings alone. Their philosophy is to keep the money in high-yield stocks, earning 10% or more a year, and then spend that 10% every year. In the 1990's and early 2000's, this was a strategy that worked - until 2008, when it all when horribly wrong.

Of course, the question is, how much to put into "safe" investments and how much to put into stocks? Many advisers suggest using your age as a barometer. For example, at age 25, you might want to be 25% into bonds and 75% into stocks. At age 50, you might want to be 50/50. And at age 75, perhaps 75% in safe investments and 25% in risky stocks.

There are some who argue that perhaps this scheme is too conservative. Since most folks will be working longer before they "retire" it makes sense to leave the money in higher-yielding investments longer. At age 51, I may be only 8 years away from being able to tap into my 401(k), but I am 20 years away from having to tap into it, and it could be 25 years before I need to tap into it. Two decades is a long time, and compound interest adds up quickly.

The mechanics of re-balancing are not hard to do, for most mutual fund companies or self-directed IRAs. You have to go online, sell some or all of your stock funds and then buy, with the proceeds, bond funds. Some brokerages (such as Fidelity) allow you to "swap" from one fund to another, without having to wait for the sale to clear before making the purchase (which usually is 24 hours). Some brokerages don't charge fees for such swaps, although the funds themselves have fees attached or management fees, or even "loads". For a self-directed IRA, such as my E*Trade account, you can just sell stocks and buy bonds, if you want to, although you have to pay their $9.99 trading fee, usually, for each transaction.

Are bonds foolproof? Well, it depends a lot on what kind of bond it is - from a U.S. Government backed Treasury bond (secure, but earns little) to a municipal bond (a little riskier, but still a pretty good bet) to a corporate bond (hope it ain't GM!). Municipal bonds have some interesting features in that in many jurisdictions, they may be tax-free. Obviously this is a nullity in a tax-deferred retirement plan.

And bonds and bond funds do go down in value on occasion. If you sell a bond before its maturity date, the only buyer is someone on the secondary market who will take it off your hands. And what they will pay for it is what the market thinks it is worth. So if you have a GE Bond, and people get nervous about GE, the value of the bond goes down, even if GE has promised to pay you all this interest down the road.

In the old days, bonds used to come with "coupons" representing the interest payments due. At the end of each interest period (e.g., year) you would cash in the coupon and get your interest payment. Thus, it was possible to "strip" the coupons off a bond and sell them off separately and keep the underlying bond (which is good only for the face value at the maturity date, with no interest). In effect, the bond was two financial instruments - a promise to pay a fixed amount in X years, and a stream of income of y% for X years. My understanding is that these days, these types of bonds are not very common.

The wine business is an interesting one. Unlike the spirits business or the beer business, in the wine industry, the sky is the limit, when it comes to pricing.

Think about it. If you go to the liquor store and look at their cheapest Vodka (Kamchatka or such such brand, in a plastic bottle) and their most expensive (Belvedere, for example) the difference in price is no more than two or three times the cheapest brand.

Similarly, when it comes to beers, even the most exotic imported micro-brew is no more than 3-4 times the cost of your typical "lite" beer. Perhaps a little more, but not much.

But in the wine world, the price of a bottle of wine can go from $3 a bottle to $3000 a bottle, with numerous price points in-between.

Now, granted, most of the wines sold are at the lower end of the spectrum - in the sub-$100 range. But even here, it represents a huge price delta. For example, a "good" bottle of wine at a wine shop might set you back $30, whereas a bottle of Wal-Mart's Oak Leaf Shiraz is less than $3 a bottle - a delta of 10x in pricing - just in the lower end of the business.

Many folks avoid drinking wine, on the premise that it is just all a bunch of posturing and snobbery. And to some extent, they are correct. You don't get prices like this by selling on the value alone. Most expensive wine, I'm sorry to say, is sold on snob appeal - even in the lower price brackets.

The proof of this, of course, is in the pudding. When put into blind taste tests, inexpensive wines, even Bronco Winery's "Two Buck Chuck" (which is now closer to $3 a bottle at Trader Joe's) end up besting wines that cost 5 or 10 times as much. When rated by wine magazines, such as Wine Spectator, the scores for such inexpensive wines often top pricier types. What does this say about the wine business?

And as I noted, the snob appeal of wine isn't limited to the higher end vino. Even among low-end wine drinkers, people will get snobby about brand, cost, and source. For example, we were asked to find some wine for a party here on the island for a local group. The group leader favored a $5-a-bottle brew from the local wine shop. Not bad wine, in that price range. We asked him to try the Wal-Mart Oak Leaf instead, wrapping the bottle in paper so he could not see the label. He said he liked it, but when we told him it was $2.97 from Wal-Mart, suddenly he claims it ain't so hot. Funny how that works, eh?

The wine business is, in large part, all about perception. And if you can sell the sizzle, as they say, you can make a lot more money. People buy more expensive wines because they want to appear to be sophisticated - and put up an appearance of wealth. Who are they impressing? The Sommelier at the restaurant? Hardly. Likely, he's seen it all, including so-called gourmands, scarfing down a bottle of corked $100 Pinot Noir, and commenting on how unusual the flavor is.

No greater example of this phenomenon is in the cork itself. Sealing wine bottles with corks, is, of course, an anachronism. Corks have a high failure rate - as much as 5% - and each "corked" bottle (a bottle where the cork goes bad) represents either a loss for the producer, or, if it gets into the stream of commerce, a black mark on their reputation.

When the supply of cork started to dry up a few years back, people started experimenting with twist caps and other closures. There is no technical reason cork is required for wine - and other types of closures work as well - if not better - without affecting the taste of wine or its quality. However, half of the appeal in wine is the process of serving it, with a waiter making grand gestures in opening a bottle, sampling it, and pouring. It is a ritual, and a ritual people like to participate in. Twisting off a cap, well, seems so pedestrian.

Even for champagne, cork is just an embellishment. Sparking wine can (and is) sealed by bottle caps, just like beer. The pressure is about the same, and if you think about it, beer is just hop champagne - made using about the same process.

Americans are more hung up about wine that the rest of the world. We are status-seekers in America, which is why we will pay over market value for a BMW, Mercedes, or Ferrari, convinced they are "status symbols" - while in the rest of the world they are viewed as just fine cars, but sold at far lower prices in their home countries (as evidenced by the booming grey market in those cars, a few years back). So Americans view wine as a big deal - and think it should be priced accordingly. And we view champagne as something to be served only on the most special of occasions. Both views of wine are, well, just bunk.

In most of Europe, wine is viewed as a beverage - on par with Coca-Cola or, here in the South, Sweet Tea. And most folks don't drink $30 to $100 bottles of wine with every meal, but rather something more pedestrian, known as "table wine". Table wine is the vin ordinare that is served on a daily basis, with lunch, with dinner, and any other time. They don't make a big deal about serving it, and no one attaches any social status to it. You enjoy it for what it is, and if it is good wine, what's not to like?

And that's the rub. While there are expensive wines that appeal to the more sophisticated palate (or people inclined to think they have a more sophisticated palate), most of what is sold as a "premium" wine in the USA would probably qualify as "table wine" elsewhere. Just as we pay more for a Mercedes in America, we often end up paying more for wine. And that is pretty stupid.

Speaking of stupid, there are people who buy wine and never, ever drink it. And in fact, such folks have been ripped off in the past. These ultra-sophisticated collectors will bid prices through the stratosphere for old bottles of wine which may in fact be little more than vinegar. But since no one every drinks these rare "collectible" bottles of vino, there is no way anyone would find out if they are in fact, fake. And in recent scam, some wealthy collectors were sold what was supposedly part of Thomas Jefferson's private wine stash, but turned out to be, well, something less than that.

Of course, the idiot who paid $500,000 for the fake wine was none other than scumbag-du-jour William Koch, so there is a little poetic justice in all of that.

But for the rest of us, to whom $500,000 might represent the result of a lifetime's work, and not merely a bottle of wine, there is good news. There is a lot of wine out there, reasonably priced, and as a consumer you are in the driver's seat.

California, Chile, Argentina, New Zealand, Australia, France, Alsance, South Africa - you name it, people are making and selling wine. And there are a lot of good wines out there for less than $10 these days.

One source of these cheap wines are mega-wineries like the famous Bronco Winery. While other wineries may decry their low-ball pricing tactics, as the President of the company Fred Franzia put it, "they sell me their wines".

Most of the more inexpensive wines are blended wines - so-called "varietals" that are made by blending a number of finished wines, or grapes or grape juice. In some instances, even different types of grapes or wines are blended. As with blended scotch whiskey, the goal is to produce a good tasting wine by combining a number of lesser wines.

Most more expensive wines are "estate" wines, meaning they are made from grapes grown on site, in one particular year. Like with a single-malt scotch, the result can be spectacular - or not. Bad weather, too much water, too little water, and other conditions can mean that an estate wine can be fantastic one year, and absolutely undrinkable the next. It is these latter wines that end up being sold to places like Bronco, who mixes them with other wines to produce a variational blend that makes for a good, serviceable table wine.

But many folks are still intimidated by the huge selection of wines. In addition to all the varieties available (red or white, then what kind of red or white?) there are literally thousands of brands, with only a few popular brands being represented at your local grocery store or food mart. Which bottle to buy? Even at $10 a bottle, is it worth the risk, to the consumer, to end up with a bad bottle of wine? It does affect economic choice.

And many folks have little to go on, other than the label. And labels sell wine, let's face it. Memorable brands and logos are useful if you are courting repeat business. To capture the "serious" wine drinker who wants a "quality" bottle of wine for dinner, you might go with a very fancy label on fine paper, with an engraving of the Estate home on the label, preferably with gold medallions and a neck label as well. And on the back, be sure to put some high-toning rhetoric about the quality of the wine.

While that might sell a bottle to Joe Consumer looking for a "serious" bottle to take to a friend's house for a dinner party, it will be death to Josephine consumer, who is looking for something more "fun" to drink with her girlfriends. Fun wine labels - with pictures of old cars or trucks or bicycles - sell the idea that the wine is not to be taken so seriously - and that you will have a good time, too.

And it is hard, when buying wine, not to fall into the label trap. And we all do it - buying a bottle of wine because it has an interesting label or name (e.g., Gnarly Head Old Vine Zinfandel) or artwork - and then buying it again, if we like it. Sometimes even an ugly label can work. As I noted in another posting, the label on Juame Sierra Cristalino is plain ugly, particularly with its trademark disclaimer. But I had to admire their balls for using the name, and I bought it. And you know what? It is the best inexpensive sparkling wine out there - and the price is creeping up as a result.

But label or not, most wines are pretty decent - if they are the type according to your taste. I do not like sweet wines, for example, except as an aperitif, and so long as I avoid such wines, for the most part, I have never had a 'bad' bottle of wine, unless it was corked.

I have had bottles of wine that I felt were overpriced, which is a disappointment. But on the other hand, I have had other, stellar bottles of wine that turned out to be dirt cheap. And the funny thing is, when you go back to buy such wines, you realize you are not the only one to think so - you'll see the display case emptied out rather fast for such wines.

And that is the beauty of the whole deal. You don't have to spend $30 on a bottle of wine to enjoy a good wine and have a good time. And since we have such inexpensive wines to chose from these days, you can afford to "risk" a new brand or type, and see if you like it. And it is fun to change your kibble on occasion - and try different things.

Unfortunately, most Americans seem to be brand-centric. The beer drinker picks one brand and variety - and even the packaging - and buys nothing but that - 12-packs of Bud Light, for example. Or the wine drinker who favors only one brand and variety over all others - and seeks out only that brand, for the lowest possible price. Or the spirits drinker who buys his preferred brand in gallon jugs and the discount liquor store, never thinking to try something new and different at all.

Mono-centric drinking like that is, to me, somewhat scary, as it turns the experience of drinking, which can be a ritual, social occasion, a beverage, and yea, a way to get fucked up, into just the latter - a drug source to be purchased in bulk at the lowest possible price and consumed in mass quantities.

Don't be afraid to mix things up. And with wine these days, you can afford to.

Saving money, like dieting, or trying to kick drugs, alcohol, coffee, sex - are all hard things to do, as they are contrary to your brain's need to engage in obsessive-compulsive behavior. Our brains are programmed to be lazy, and hard work takes extra effort. And saving money is hard work.

And by "saving money" I don't mean getting a discount with a coupon. I mean putting money aside into savings. Usually the alternate definition of "saving money" - by trying to shop aggressively, does just the opposite - it spends money, not saves it.

Most of us under-save and over-borrow. Why is this? Well, it is hard to save up money for something. For example, when I was a lad, I had an old Chevy, and it needed new tires. As a 20-something, most of my income went to pay for food, housing, clothing, and beer. Lots of beer. And as a result, there was nothing "left over" at the end of the day to save.

So I went to Sears and looked at tires, and the helpful man behind the counter showed me how I could get a Sears Credit Card and then buy the tires I needed and pay them off, over time. And to a young weak mind, it seemed like a good idea. After all, instead of putting aside $10 or $25 a month for new tires in savings, I was merely paying the same amount, over time and paying a little extra in interest. It was convenient and easy, and of course, a trap.

Why is this? Well, to begin with, the obvious thing - interest. Back then, a new set of Radials for the Bel Aire were like $35 each (multiply that by 10 for current prices on tires for my X5). By paying for them $10 a month, over time, it would take a year or more to pay off the balance. And I would end up paying for a fifth tire, so to speak, in the form of interest -which for a store card, for a young kid, in the early 1980's was pretty high (15% or more).

The second problem is that when you are spending "funny money" it is easier to spend more. So when the nice man at the tire counter tells me that for $2 a month more, I can get raised white letter radials, well, wowee! Incremental costs, when expressed in terms of monthly payment, seem trivial. And of course, since the place I went to was offering credit, I did not bother to cross-shop the tires with other stores or look for other bargains out there.

When you pay cash, on the other hand, you not only save money on interest, you shop smarter. I would have not opted for the higher-end tires for my old clunker, if I was taking cash out of my wallet. And I might have looked for a better price from a different store - or perhaps even looked for a set of used tires or other options. But the main point is, since I was putting it all on credit, I was not watching the bottom line.

But for a beer-swilling 21-year-old, saving money is damn hard to do. And the key reason why is how most people try to save money - as the last thing they do, not the first. So they spend their paycheck and promise themselves that they will "save" whatever is left over. Funny thing, though, nothing is every left over. And as more and more stuff is bought on credit, the odds of anything being left over dwindle quickly.

So, your typical young person tries to counteract this by putting a huge chunk of money into savings. But he over-saves, and doesn't leave enough to pay the bills. Pretty soon, the savings are tapped into, and nothing is left in the savings account. Ouch.

How does a person avoid these traps? I can suggest a number of things:

1. Pay yourself first: You've heard this mantra before. Put money aside for savings when you get paid, and then leave it there. There will be nothing "left over" at the end of the week, so put it aside first.

2. Save modestly: Trying grandiose schemes for savings will backfire. Put aside modest amounts at first, so you can train your brain to save. Even $10 a week is a good start - and over 30 years, that would top $30,000 even at 5% interest. Start out small and work your way up.

3. Used forced plans: Your 401(k) takes money out of your paycheck before you even "see" it - and it is hard as hell to get at. So it forces you to save.

4. Put money where you can't get at it: As I noted before, we had a credit union account in Maryland that I mailed checks to. Since we had no debit card, I would have to drive to Maryland to get at the money. As a result, we saved.

5. Create a specific savings plan or account for specific needs: If your car is getting old, start putting $100 a month into a savings account at your credit union or bank, with the idea of saving up for a new one. By the time old Betsy heads to the junkyard, you'll have a few grand saved up for the next car - and can pay cash, instead of financing.

6. Realize that Savings is HARD: No one has it easy, trying to save money. It is a continual struggle to save, not an easy road to riches. So don't expect it to be easy, quick, and painless. Because it ain't. But most of the good things in life are the result of hard work and sacrifice. What comes easy is usually horribly bad for you - just think about it for a second.

We have done pretty well with savings so far - but mostly in retirement accounts. Saving cash money is always a challenge, as there always appears to be some "need" to spend at the moment, and these needs are usually wants.

The X5 is topping 130,000 miles, which is not a lot for a car these days. But after a decade, it is showing signs of wear. I hope to get another five years out of it before I have to buy another car. But now is the time to start putting aside money for that day. Putting aside even just $100 to $300 a month for the next five years is a lot better idea than paying $500 a month in car payments for the same time period. And yet many folks do just that - or worse yet, lease.

So, my goal is to set up a savings account just for that purpose, to set aside money for a specific task for a known expense that is coming.

We are going on a cruise next week, and I can already tell you, it will be the last one I go on.

I am taking a cruise on the largest cruise ship in the world, the Allure of the Seas. Always a good idea to travel on the "largest" anything, like the Titanic or the Hindenburg. This is for CLE credits for the Georgia Bar. Yea, Doctors and Lawyers can go on swell vacations and then write it all off as "educational" or "client development". It is a real scam of the tax code. And in the past, I never went for these Hawaiian CLE conferences or whatever. But I figured, just this once, why not?

But before we have even set foot on the boat, I can tell you that I am not likely to do so again. And there are a number of reasons why.

As I noted in an earlier posting about cruises, the actual cost of a cruise has little or nothing to do with the stated price. Expect to pay at least double, if not triple, the room rate before it is all said and done. The come-on pricing on cruises is sort of the first thing that leaves a bad taste in your mouth. This is not a "cheap floating vacation" by any means, but rather a very expensive trip. You could sit on sandy beaches and have handsome waiters bring you cocktails in Ft. Lauderdale, for a lot less money that doing the same thing on a cruise ship.

However, we enjoyed a three-day cruise to the Bahamas, mostly because it was not a trip to the Bahamas, but a chance to sit on the beach in warm weather. Cruise ships spend less than 12 hours in harbor in most places, so you have little time to see what the place is all about. For example, we spent four days in our camper in St. John's, Newfoundland - and hardly explored the place. The people arriving on the Holland American cruise ship while we were there, had hardly a few hours to see one or two tourist attractions. You are not really traveling when cruising, just staying in a nice hotel that floats. You are not really visiting exotic foreign locations at all - but rather parachuting into them for hours at a time. And what you see is either a tourist trap or a t-shirt-shop.

What gets infuriating about such trips, though, is that it is hard to plan the trip or understand what is going on. The Royal Caribbean website is layer upon layer of confusing HTML pages. You log in, try to do something, and end up calling their 1-800 number for clarification.

For example, every time I log in, it says, "There is still time to check-in online!" So I click the link and think to myself, "Gee, didn't I check in online last time?" and sure enough, it shows that I checked in. So why does it keep bugging me - in alarming fonts - to complete this task? We are told, ominously, that if we don't check-in online, it will take "hours" for us to check-in at the boat.

By the way, this is a strategy the cruise lines use to herd you like cattle. Be sure to do X, otherwise, you'll have to deal with our horribly inefficient bureaucracy and be miserable. Um, why not just not create miserable experiences for your guests in the first place? Just a thought.

As I noted in my Actual Cost of a Cruise posting and related postings, there are so many "extras" you have to sign up for. Do you want single beds or double beds? Do you want a wine package? Water package? Soda Package? Fresh Air package (OK, the last is a joke). Do you want to pre-pay your tips? You'll get better service if you pre-pay your tips! (You will? Are you saying the people are otherwise slackers? And doesn't that go against the whole idea of tipping in the first place - tipping AFTER the service is done?

What time do you want to eat? Do you want to try an extra-cost specialty restaurant? What about a show? Sorry, they're all booked up!

And of course, for each add-on, there is another confusing page to fill out and the vague feeling that you will not get what you asked for when you get onboard. For example, the wine package thing - we got on the Monarch of the Seas and they say, "You didn't sign up for a wine package!" and I was damn glad I printed out the receipt on that. But you can see how such "errors" on their part can end up getting you double- or triple-charged for services.

It is just such a freaking hassle, frankly. And vacations should not be a freaking hassle. Ordinarily, when I go on vacation, I go to a restaurant I want to go to, shop for food based on quality and price, and pick my wines from the wine list. I don't have to pre-pay, pre-select, or pre-order - or figure out what time I want to have dinner, three weeks in advance.

Now, throw in a travel agent. Since this trip was booked through the Georgia Bar, it was booked through a travel agent. The agent is nice and tries to be helpful, but it is not clear to me what portions of the trip the agent handles and what I have to do. Want to check-in online? I have to do that. Want to pre-pay the gratuity? The Agent now handles that. Want to order a wine package? Back to the Royal Caribbean website. Instead of making things EASIER, travel agents just add another layer of complexity to the deal - by putting yet another person in the loop, which as we all know, increases reliability and dependability in any human-based system.

So, we are going to stay in a floating hotel for seven days - with an occasional trip to the beach. But what a hotel! It has theaters and entertainment - the musical Chicago, for example (sorry, sold out!) or their great Circe Du Soleil type water spectacle (sorry, all sold out). Or, you can eat at one of the extra-cost restaurants on the ship (Sorry, all sold out) or use "my time dining" to dine whenever you want (Sorry, available times are 5:30 or 9:45 only).

You are, of course, still free to shop in the gift shop or gamble in the Casino. All you want.

The only saving grace will be that the room has a balcony, and room service is free. So we can order meals and eat on the balcony and just enjoy some sun and good weather, and not be part of the feeding trough in the "all you can eat" lunch buffet.

But that drives home the angst and fear I have about the whole trip - and a vacation should not be about angst and fear.

So, we will enjoy ourselves and hope the line at check-in isn't three hours long, and that the room is properly made up in a king-sized bed and not doubles and I won't have to chase down a harried steward and ask him to change it. And I hope I won't have to haggle with the steward over the water package we pre-ordered (like we had to, last time) or the waiter about the wine package (like we had to last time) and end up not seeing any of the shows (like last time), etc. etc. etc.

Because, if you go online, you will find plenty of websites with cruise trip horror stories, and very damned few about how great it all went. And that is part of the problem right there.

For a lot of people, a cruise is a game - they complain about every damn thing and then ask for a discount or a credit. Outside the cruise line terminals are huge billboards from law firms, asking you, "Did you get sick on your cruise? Call the law firm of Dewey, Screwem and Howe!". It is all about creating a system of arcane rules and then letting the consumers game the system so that they can feel they are getting a "deal" or something - and then regale their friends about the discounts they got.

Casinos work the same way, with their "comp'ed" rooms and meals. And every gambler I know will bore you for hours about how they got a free plate of prime rib after blowing $200 at the blackjack table. How can the Casinos afford this? Volume!

Yea, right.

I'm afraid it is just another frequent-flyer miles credit card deal, all over again. Distract you with discounts and all sorts of convoluted rules and gaming, so you don't look at the basic transaction - how much it costs and what you get. And yea, the cruise lines all have frequent cruiser clubs, with special membership perks, like a membership lounge area.

And that is funny, right there. On the last cruise, there was a membership lounge area, and although it was nice, it was, after all, just a lounge. And yet the people in the "Crown and Anchor" club all flocked up there, so they could take advantage of this "upgrade" perk. The part of the lounge not reserved for members was, tellingly, quite empty. If you tell someone something is a special perk or bonus for the "elite status premiere members" they will flock to it, even it is just a pigsty full of shit. People are funny that way.

And I guess that sums up cruising in a nutshell. It is a convoluted game of arcane rules and tricks, and everyone onboard will bore you to tears about the "secret inside tip" to getting the best table, the best meal, the best drinks, or whatever. "If you become a smart cruiser!" they chip, "You can get the best deals!"

Or, you could just not go at all, and get better deals doing something else. Because these sorts of games are played from a stacked deck. At best, you'll get value for your money - and think you got something extra. But when the point of the game is playing the game, well, you've lost sight of the original goal.

And since Casinos, Cruise Lines and Frequent Flyer Miles credit cards are not about to change any of this, the only choice you have is to either waste a lot of your time trying to play a game where the house always wins - or chose not to go at all.

I suspect I will do the latter. This will be my last cruise. Next year, I'll get my CLE credits at Amelia Island. It is only a short drive from here, I can bring the dog, and they have all the sandy beaches and unique restaurants you could want. And golf. And I'll just as much of Jamaica as I would have on a cruise ship - that is to say, none.